Modularity of the new financial system
The world is not witnessing a sudden collapse of the dollar-based system. It is instead drifting—methodically, almost imperceptibly—into a fragmented monetary environment. This is not a revolution, but a shift in structural architecture. The old model, defined by a singular reserve currency, unified capital pools, and centralised liquidity mechanisms, is being replaced by a system of distributed relationships, bilateral trust lines, and regionally ring-fenced finance.
Four broad dynamics are coalescing. The first is the steady decline of the reserve-currency model. Countries are no longer satisfied holding large dollar reserves or channelling all trade and settlement through New York or London. Instead, they are constructing bilateral and regional swap lines that reduce reliance on a central intermediary. These arrangements have moved from diplomatic gestures to systemic infrastructure. The yuan-dirham oil contracts, for instance, or the renminbi-ruble energy settlements, are no longer isolated exceptions. They are building blocks of a parallel framework where liquidity is accessed horizontally, not vertically.
Second, domestic funding systems are maturing across the developing world. Local governments are deepening their capital markets and reinforcing domestic demand for public and corporate debt. They are also intervening directly in FX markets to moderate volatility, often with implicit or explicit swap buffers behind them. As the credibility of domestic policy improves, and as the cost of external borrowing rises amid geopolitical risk, this local anchoring becomes both cheaper and more politically attractive. However, it introduces a structural tension: local markets gain insulation from external shocks but lose access to the scale and depth of global liquidity.
The third dynamic is the slow decomposition of global liquidity as a singular pool. Centralised market-making, cross-border banking lines, and universal collateral frameworks are giving way to fragmented, region-specific liquidity structures. In place of a global yield curve sits a patchwork of regional regimes, each with its own interest rate anchor, collateral norms, and funding corridors. This is not merely inconvenient—it’s structurally fragile. Without common platforms or coordination mechanisms, liquidity can no longer pivot efficiently across regions. Stress that once triggered a dollar-based liquidity response now ricochets between disjointed subsystems.
Finally, there is the growing monetary role of local real assets. In the absence of a unifying reserve asset, local currencies are gaining importance not just as units of account, but as policy tools anchored to domestic resources, demographics, and growth trajectories. Governments are no longer benchmarking value against Treasury yields or the dollar index. Instead, they are designing financial instruments around local stability metrics—commodity exports, tax bases, productivity—and embedding that logic into domestic bond markets. The diversification of monetary anchors reduces global synchronisation, but it also introduces systemic opacity.
Together, these four shifts form the foundation of a world where no single currency, capital pool, or institution provides cohesion. That does not imply chaos. It implies the need for a new layer of interoperability.
Historically, the Eurodollar system filled this function informally. Offshore banks created synthetic dollars through internal credit creation, managed through private trust networks and bilateral ledger reconciliation. It was efficient but opaque, and catastrophically fragile under stress. The opportunity today is to replace that informal network with programmable infrastructure: ledgers that are sovereign but interoperable, liquidity corridors that are rule-based, and collateral systems that are transparent and live.
Imagine a Southeast Asian capital corridor. Vietnam issues tokenised sovereign bonds on a regional permissioned ledger. Malaysian asset managers buy these instruments using ringgit or stablecoin equivalents, with automated FX swaps executed via on-chain protocols governed jointly by both treasuries. The transaction is settled atomically—cash and bond delivery synchronised on the same platform, with all rights, durations, and FX terms embedded in smart contracts. Rehypothecation rights are transparent, and margin rules are enforced in real-time.
Collateral can then move within the network, with Singaporean banks using Vietnamese bonds in repo transactions backed by digital liquidity from Indonesian state funds. Central banks monitor encumbrance directly via node access, eliminating reporting lags. The system is not fully decentralised—regulators and sovereigns maintain governance—but it is transparent, interoperable, and programmable.
This structure solves what the Eurodollar could not: trust without opacity, decentralisation without anarchy. It enables countries to maintain sovereign control over monetary instruments while participating in a common liquidity framework that is both rule-based and dynamic. In times of stress, instead of waiting for external lifelines or unilateral Fed liquidity taps, these regional systems could deploy algorithmically managed buffers triggered by observable market data, redistributing liquidity internally.
Such architecture requires not just tokenisation of assets, but convergence on legal, technical, and supervisory standards. Financial instruments must be defined in code, governed by interoperable protocols, and settled on ledgers that maintain integrity across jurisdictions. This is not a utopian goal. The technology exists. What is needed is political will, regulatory clarity, and a willingness to invest in infrastructure that transcends the nation-state without dismantling it.
The dollar may not disappear, and it need not. But the idea that global finance must revolve around a single balance sheet—be it in Washington or Basel—is no longer viable. The future is fragmented. But fragmentation, properly structured, is not dysfunction. It is resilience through modularity.
The Institute of Future Banking is an open discussion platform, where all authors interested in shaping a future blockchain/AI-based financial system can share and discuss their ideas. Join us and share your ideas.
